Hi Laurie,

Not sure if I'm missing something here, so would like clarification.  I also have been in their FRIP for a couple of months.  Our club does not have Scottrade, but I do with an IRA. 

To me, it seems similar to regular dividend reinvesting, except that instead of my dividends going back into the original stock, they go into a stock or stocks that I designate.  As Len said, they only buy whole shares so it would seem simpler.  I currently have at least one stock that gives off a good dividend, don't want to sell the stock, but also don't necessarily want any more of it.  I can use its dividends to purchase a share or shares of another company I own that I do want more of, commission-free.

I was our Club's Treasurer with bivio for 2 or 3 years and assumed your software would accommodate tax reporting in the same way you do with dividend reinvestments.

Scottrade accumulates your dividends (only for stocks that you designate) and when there is enough to purchase a share (or shares), they do.  I assume this would be reported by AccountSync as it does for dividend reinvestments currently.

Am I missing something that would make this program more difficult than regular dividend reinvestments for a club (bivio's AccountSync) to work with?

Thanks for your help, Laurie.  I'm learning a lot from Club Cafe from both you and other bivio users

Suzanne McNealy

From: "Laurie Frederiksen" <laurie@bivio.biz>
To: "club cafe" <club_cafe@bivio.com>
Sent: Tuesday, August 13, 2013 7:26:27 AM
Subject: Re: [club_cafe] Re: Scottrade Flexible Reinvestment program

From how it is described, it sounds like this might be another investment technique where you will end up with a lot of small lots.  Each will have a separate tax basis that will need to be tracked.  If you are meticulous about record keeping, that shouldn't be a problem.  If you are not, however, all the tiny lots can create a nightmare to work through if you have to sort out some accounting problem.

In a club,  this can mean that you find out late that partnership business has been conducted incorrectly for past transactions.  This can affect all the members of your club meaning problems can have a much bigger and more significant impact than they do if they happen in a personal account.

Just something to think about and add to your club discussions.

Laurie Frederiksen on

04/13/2013

The issue has to do with accurate record keeping. Each purchase when you reinvest a dividend is a separate lot of stock and needs to have it's cost basis tracked correctly. Having an accurate cost basis over the years will depend on things like this:

1. Accurate entry of the original purchase (There are lots of numbers that can become typos when fractional shares are being purchased.
2. Complete entry of all reinvestments - We frequently see records where entries have been missed completely
3. Proper adjustments for historical reorganizations such as splits, spinoffs, mergers etc. These can get very complicated. When there are lots of lots, there are lots of things to adjust and lots of opportunities for mistakes.
4. Proper adjustments for re-classification of dividends. Sometimes dividends are re-classified after the end of the year, this requires proper adjustment of cost basis for all prior purchases.
5. Supporting Documentation- Clubs often ask how long they should keep records from their brokers. If you need to substantiate or check historical entries, you may need lots of old statements to justify the information you are using to calculate cost basis.
6. Proper lot selection identification for prior year sales. If you've entered any sales using a different lot selection than you used at your broker, all your current sale entries will be wrong.
7. Wash sales- It's easy to forget that you've just made or are about to make another purchase when you decide to sell some of your holding. Proper wash sale adjustments over multiple lots can become extremely, extremely difficult.
8. Changing brokers or treasurers- If you change brokers or club treasurers, historical cost information can easily be lost.
9. Cost basis method- The rules have just changed because of the new cost basis reporting rules. Average cost was not allowed for dividend reinvesting in stocks prior to 2012. It is now allowed if the dividend reinvesting is done as part of a company run DRIP program. It is not supposed to be allowed for brokerage dividend reinvesting though there seems to be some confusion about this.
   In any case, if you do not stay with FIFO lot selection on sales, you will have to track cost basis for pre-2012 reinvestments differently than post 2012 reinvestments and make extra adjustments in your club accounting to handle sales.
10. Extra taxes- If you can't properly substantiate the cost basis for your lots, you will have to assign them a basis of 0 and pay gains on the total proceeds you received in a sale.
11. Of course, any of these things done incorrectly may mean that all your historical club accounting was inaccurate. This can mean things like needing club and members to amend old tax returns, and incorrect determination of payout amounts for withdrawals paid.
    

These are all real life issues we've run into with clubs. This all adds a lot of work and responsibility to the club treasurer. It's not that you can't track all these things accurately, it just depends on how much work and attention you want to give to it.

Hope that helps.